Commercial real estate market overview h1 2010

Total volume of delivered in the 1^st half of 2010 high-quality office premises amounted to 450 thous. sq.m., it is three times less than the index of the 1^st half of 2009. The overall volume of A and B class high-quality office premises reached 10,5 mln. sq. m. by the end of the 1^st half of 2010.

The main trends in demand for commercial real estate still reflect the negative impact of the crisis: the share of requests for office premises acquisition is rather large, the main demand for rent is concentrated in the segment of small premises in the turn-key condition.   

The absorption of high-quality premises during the 1^st half of 2010 was taking place at a fast pace, however the established during 2009 "stock" of vacant demand, delivering new demand and a large number of rent deals without increase of occupied area retain indexes of vacant premises at a rather high level. By the end of the 1^st half of 2010 the share of vacant A-class premises amounted to 25%, B-class premises - 20-23%

The main trends of the office market have the crisis character: during the 1^st half of 2010 the correction of developers' plans, the freezing or the change of parameters of planned for construction projects with office constituent took place as before. However, during the expired from the beginning of 2010 period first signs of recovery in the development market appeared.

The price indexes of supply in the commercial real estate market of Moscow remained stable during the 1^st half of 2010. Minor fluctuations of price indexes towards increase or decrease by separate properties and business areas were observed during the whole period.

Despite rather high activity of the office real estate market and the availability of prerequisites to price indexes growth, no stable growing trend can be observed. High level of vacant supply and the crisis trends in the market, obviously, does not allow to provide serious growth in the short-term future. Minor growth of price indexes is possible within 10-15%, not homogenous, but differentiated, predominantly in the segment of the most liquid supply.   

Expected entry of new supply by the end of 2010 is estimated at 500 thous. sq. m. level. In future delivery paces of new supply will continue to slow down.

In the 1^st half of 2010 three retail centers were put into operation in Moscow: "Rechnoy", "Viva!" and "Vegas", the increase of new supply in the professional retail real estate market amounted to 448, 000 sq. m. with the leasable area of 164, 000 sq. m. As a result, the overall volume of the market amounted to 5,4 mln. sq.m. of the total area (including leaseable area of 2,7 mln. sq. m.). The provision of Moscow residents with professional retail areas reached 263 sq. m. for 1, 000 residents. 

During the 1^st half of 2010 demand buoyancy on the part of retail operators was characteristic of the retail market. It caused decrease of vacant areas for number of properties and retail corridors, as well as suspension of rental rates decline, and sometimes their minor growth, which, however, slowed down by the end of Q2 2010. The reasons are not very high pace of buyers' activity growth and also traditional decrease of business activity in summer months.

In Q3 and Q4 2010 the resumption of gradual recovery of the retail real estate market should be expected. It is highly possible that rates growth (for the most prestigious retail corridors) and decrease of vacant areas share will continue in the street retail segment.    

By the results of the 1^st half of 2010 supply in the hotel market of Moscow enlarged with more than 1,700 rooms due to six hotels opening. Almost all new properties are positioned in the high price segment of the market. Thus, the shortage of high-quality hotels of medium and low price segments in Moscow continues to strengthen: in general there are a little bit more than 8, 000 hotel rooms in the city, which are managed by international operators, only Ibis Moscow Paveletskaya is positioned in the medium price segment.

Stabilization of demand for location services in the hotel market of Moscow was characteristic of the 1^st half of 2010: already in Q1 in comparison with the corresponding period of 2009 the index of occupancy became stable for the low segment of the market and it displayed growth for the high and medium segments. 

During the 1^st half of 2010 the cost of accommodation was declining for the hotels of all the segments. A positive trend is the slow-down of this decline: the comparison of dynamics of Q1 and Q2 of 2010 indicates a minor decrease of ADR in high and low segments, while the index of mid segment increased 13%. As a result, inclusive of minor positive dynamics of charge, the mid segment displayed profit growth for a room (RevPAR) by 4%.

The main positive trend of the 1^st half of 2010 was the slowdown of decrease of the main indexes of the hotel market activity. Despite the fact that they are still considerably lower than pre-crisis indexes, this trend allows to expect that the end of 2010 - the 1^st half of 2011 will become the period of recovery of the hotel market.